Press Note No. 1 (2011 series) D/O IPP dated 20th May, 2011
Notification No. FEMA. 298 /2014-RB dated 13th March, 2014 c.f. G.S.R. No.190(E) dated 19th March, 2014
Foreign Direct Investment (FDI) in Limited Liability Partnership (LLP)
This
circular permits Foreign Direct Investment (FDI) in Limited Liability
Partnerships (LLP) that are formed and registered under the Limited
Liability Partnership Act, 2008.
The details scheme, procedure and forms to be used for the same are annexed to this Circular.
Highlights
of the scheme – called Foreign Direct Investment (FDI-LLP) in Limited
Liability Partnerships (LLPs) formed and registered under the Limited
Liability Partnership Act, 2008 – are as under: –
1. Eligible Investors
A
person resident outside India or an entity incorporated outside India
shall be eligible investor for the purpose of FDI in LLP. However, the
following persons shall not be eligible to invest in LLP: –
(i) A citizen/entity of Pakistan and Bangladesh or
(ii) A SEBI registered Foreign Institutional Investor (FII) or
(iii) A SEBI registered Foreign Venture Capital Investor (FVCI) or
(iv) A SEBI registered Qualified Foreign Investor (QFI) or
(v)
A Foreign Portfolio Investor registered in accordance with Securities
and Exchange Board of India (Foreign Portfolio Investors) Regulations,
2014 (RFPI).
2. Eligibility of LLP for accepting foreign Investment
(i)
An LLP, existing or new, operating in sectors / activities where 100%
FDI is allowed under the automatic route of FDI Scheme is eligible to
receive FDI.
(ii) An LLP engaged in the following sectors / activities is not eligible to accept FDI: –
a)
Sectors eligible to accept 100% FDI under automatic route but are
subject to FDI-linked performance related conditions (for example
minimum capitalisation norms applicable to ‘Non-Banking Finance
Companies’ or ‘Development of Townships, Housing, Built-up
infrastructure and Construction-development projects’, etc.); or
b)
Sectors eligible to accept less than 100% FDI under automatic route; or
c) Sectors eligible to accept FDI under Government Approval route; or
d) Agricultural/plantation activity and print media; or
e)
Sectors not eligible to accept FDI i.e. any sector which is prohibited
under the extant FDI policy as well as sectors / activities prohibited
in terms of Regulation 4(b) to Notification No. FEMA 1 / 2000-RB dated
3rd May 2000.
3. Eligible investment
Contribution
to the capital of a LLP would be an eligible investment under the
Scheme. Note: Investment by way of ‘profit share’ will fall under the
category of reinvestment of earnings
4. Entry Route
Any
FDI in a LLP will require prior Government/ FIPB approval. Any form of
foreign investment in an LLP, direct or indirect (regardless of nature
of ‘ownership’ or ‘control’ of an Indian Company) will require
Government/FIPB approval.
5. Pricing
FDI in an
LLP either by way of capital contribution or by way of
acquisition/transfer of ‘profit shares’, will have to be more than or
equal to the fair price as worked out with any valuation norm which is
internationally accepted/adopted as per market practice (hereinafter
referred to as “fair price of capital contribution/profit share of an
LLP”) and a valuation certificate to that effect shall be issued by a
Chartered Accountant or by a practicing Cost Accountant or by an
approved valuer from the panel maintained by the Central Government.
In
case of transfer of capital contribution/profit share from a resident
to a non-resident, the transfer will have to be for a consideration
equal to or more than the fair price of capital contribution/profit
share of an LLP. Further, in case of transfer of capital
contribution/profit share from a non-resident to a resident, the
transfer will have to be for a consideration which is less than or equal
to the fair price of the capital contribution/profit share of an LLP.
6. Mode of payment for an eligible investor
Payment
by an eligible investor towards capital contribution/profit share of
LLP will be allowed only by way of cash consideration to be received: –
i) By way of inward remittance through normal banking channels; or
ii) By debit to NRE/FCNR(B) account of the person concerned.
7. Reporting
(i)
LLP must report to the Regional Office concerned of RBI, through its
bank, at the earliest but not later than 30 days from the date of
receipt of the amount of consideration:
(a) Details of the
receipt of the amount of consideration for capital contribution and
profit shares in Form FOREIGN DIRECT INVESTMENT – LLP (I) together with a
copy/ies of the FIRC/s evidencing the receipt of the remittance
(b) KYC report on the non-resident investor
(c) Valuation certificate (as per paragraph 5 above) as regards pricing.
The Regional Office concerned, will allot a Unique Identification Number (UIN) for the amount reported.
(ii)
The bank in India, receiving the remittance must obtain a KYC report in
respect of the foreign investor from the overseas bank remitting the
amount.
(iii) Disinvestment/transfer of capital contribution or
profit share between a resident and a non-resident (or vice versa) must
be reported within 60 days from the date of receipt of funds in Form
FOREIGN DIRECT INVESTMENT – LLP (II).
8. Downstream investment
a)
An Indian company, having foreign investment (direct or indirect,
irrespective of percentage of such foreign investment), will be
permitted to make downstream investment in an LLP only if both, the
company as well as the LLP, are operating in sectors where 100% FDI is
allowed under the automatic route and there are no FDI-linked
performance related conditions. Onus will be on the LLP accepting
investment from the Indian Company registered under the provisions of
the Companies Act, as applicable, to ensure compliance with downstream
investment requirement as stated above.
b) An LLP with FDI under this scheme will not be eligible to make any downstream investments in any entity in India.
9. Other Conditions
(i)
In case, an LLP with FDI, has a body corporate as a designated partner
or nominates an individual to act as a designated partner in accordance
with the provisions of section 7 of the Limited Liability Partnership
Act, 2008, such a body corporate must be a company registered in India
under the provisions of the Companies Act, as applicable and not any
other body, such as an LLP or a Trust. For such LLP, the designated
partner “resident in India”, as defined under the ‘Explanation’ to
Section 7(1) of the Limited Liability Partnership Act, 2008, will also
have to satisfy the definition of “person resident in India”, as
prescribed u/s. 2(v)(i) of the Foreign Exchange Management Act, 1999.
(ii)
The designated partners will be responsible for compliance with all the
above conditions and also liable for all penalties imposed on the LLP
for their contravention, if any.
(iii) Conversion of a company
with FDI, into an LLP, will be allowed only if the above stipulations
(except the stipulation as regards mode of payment) are met and with the
prior approval of FIPB / Government.
(iv) LLP cannot avail External Commercial Borrowings (ECB).
